B. The Blue Star Strategy Audit

"Have You Tested Your Strategy" is an article in the McKinesy Quarterly, Feb. 8th, 2011 by Chris Bradley, Martin Hirt and Sven Smit. They write that two-thirds of companies pass three or less of the ten questions they pose. These are reduced below to six questions, re-ordered and summarized. The full questions, with accompanying explanations, are given at the link. Having your team read that article before a meeting to conduct an internal strategy review is strongly recommended. From it one can distill the questions most relevant for your business and use them as a basis for an annual strategy audit.

The KISS acronym, Keep it Strategically Simple, also applies to audits. IBM believes one should ask three critical questions for strategic clarity:1

1. What's the pain point (and passion point, Bridges adds) for the customer?

2. Who are we going to come up against in the marketplace?

3. How can we deliver more value to our customers than our competitors?

For a more detailed approach, continue with the six questions that follow. Upon completing them, one should return to the IBM triad above to double-check the strategic clarity. To summarize (with adaptions) the "Test Your Strategy" questions:

1) Does your strategy follow trends, or put you ahead of them?

Many strategies are based on extrapolating from the past. They are at risk when innnovation shifts the market. A problem with extrapolation is bias: (1) attribution error, (2) failure blindness and (3) received wisdom.

1.1 - Attribution error, also known as the halo effect, means that cause and effect relationships have not been properly understood. Success is attributed to event A, when it really came about because of (fortuitous) circumstances B,C, and D.

1.2 - Failure blindness, or the graveyard effect, is ignoring the data about mistakes, from ventures that no longer even exist. "How best do we throw someone into the water, from what height, into a quiet fresh water pond or a choppy, heavily salted sea, to teach him how to swim?" Ignoring the data about all the folk who drowned with the "throw" method does not lead to a good strategy for a company offering swimming instruction.

1.3 - Received wisdom: "everyone in the industry knows that" is a bias especially common among senior managers, now far away from the trenches, whose entire career has been in that industry.

2) Will your strategy beat the market?

To beat the market over the long term, one needs to be ahead of trends, not merely follow them. Over time, FOP (front of pack) leaders become MOP (middle of pack). If a leader is too late to respond to the inevitable market shifts, the drift may well be to BOP (back of pack). As the McKinsey authors put it: "markets drive a reversion to mean performance."

3) Is your strategy based on a real advantage, by positioning, or through special capabilities?

Do you know the weakest link in your value chain? What new insights (i.e. above and beyond received wisdom) does your strategy reflect? Data mining generates a lot of white noise. Alone it is not enough, for instance, to solve an old customer problem in a new way.

4) Is your strategy specific about where to compete, which market niches?

5) Does your strategy lead to real commitment - "being on a mission," versus having a mission statement?

Is that commitment balanced with the flexibility to account for uncertainty? For instance, do you run scenarios with a range of best case/worst case assumptions? Focusing on the goal is key to a sustainable competitve advantage. However committing to that goal can lead to tunnel vision, to a lack of flexibility.

6) Is realizing your strategy tied to an immediate action plan with budgets, milestones, and managers held accountable for specific strategic targets?

1 The source for the IBM triad about strategic clarity is the twenty page “Emerging Business Opportunities at IBM (A)” by David A. Garvin and Lynne C. Levesque, a Harvard Business School case. It has two supplements, which they also wrote, a (B) of two pages, and a (C) about a specific EBO (Emerging Business Opportunity), Pervasive Computing, of six pages. (A), (B) and (C) were published March 2004 and revised Feb. 2005.

The series can be purchased for a modest fee of about $15 for all three as pdf downloads (cf. the preceding link). A brief two-page summary of key points from the case is presented at "A. Blue Star Start-up Strategy for Intrapreneurship" at VI. Start-up Strategy.